Trading Commission

Quick Definition

A trading commission is a fee paid to a broker for executing a securities transaction: buying or selling stocks, ETFs, options, or other securities. Historically charged per trade ($5 to $30 at discount brokers, $100+ at full-service brokers), trading commissions were largely eliminated by major U.S. online brokers in October 2019, transforming retail investing economics.

What It Means

For decades, trading commissions were a significant friction in retail investing. A small investor making monthly $500 purchases and paying $10 per trade had a 2% immediate drag on each investment. This made frequent investing, including dollar-cost averaging, expensive and discouraged rebalancing.

The commission-free revolution that swept U.S. brokers in 2019, triggered by Charles Schwab's announcement on October 1, 2019, fundamentally changed retail investing. It enabled fractional shares, eliminated the cost penalty for frequent small investments, and powered the rise of zero-cost index fund investing.

The Commission Elimination Timeline

Current Commission Structure at Major U.S. Brokers (2026)

Source: Fidelity commissions page, verified July 2026.

How Brokers Make Money Without Commissions

If commissions are $0, how do brokers survive? Several revenue streams replaced commissions:

PFOF remains the most debated. Critics argue it means orders are executed at slightly worse prices for retail investors, creating a hidden commission. The SEC has proposed reforms multiple times but has not banned the practice. Robinhood's PFOF model has been scrutinized particularly heavily, including a $70 million FINRA fine in 2021 for misleading customers about how it made money on trades.

Where Trading Commissions Still Apply

Options Trading Commissions in 2026

Options still carry per-contract fees at most brokers. Robinhood changed the landscape by introducing per-contract fees in 2025:

A typical 10-contract options trade at $0.65 per contract costs $6.50. For active options traders, the difference between $0.35 (Robinhood Gold) and $0.65 (Fidelity/Schwab) adds up: 100 contracts per month saves $30, or $360 per year.

The True Cost of "Free" Trading

Zero commissions do not mean zero transaction costs:

Research shows that commissions were never the primary cost for passive, long-term investors. Bid-ask spreads and behavioral errors were always larger. The zero-commission era primarily benefits active traders and frequent small investors. For a deep dive, read our guide on how to open a brokerage account.

Key Points to Remember

• Trading commissions at major U.S. brokers are $0 for stocks and ETFs since 2019.
• Options still cost $0.35 to $0.65 per contract at most brokers. Robinhood Gold offers the lowest at $0.35.
• Brokers replaced commission revenue with PFOF, net interest income, and securities lending.
• Zero commissions enabled fractional shares and cost-free rebalancing.
• The true cost of trading includes bid-ask spreads, not just explicit commissions.
• Zero commissions have increased trading frequency, which is usually not beneficial for investor returns.

Common Mistakes to Avoid

• Assuming $0 commission means $0 cost: The bid-ask spread remains a real cost. On illiquid stocks or during volatile markets, spreads can be 0.10 to 1.00% of trade value. For long-term buy-and-hold investors in liquid index ETFs, spreads are minimal (often 0.01%). But for frequent traders in less liquid securities, spreads compound significantly.
• Overtrading because trades are "free": Zero commissions remove the friction that previously discouraged excessive trading. Studies show that higher trading frequency correlates with lower returns. The behavioral cost of zero commissions may exceed the dollar savings for many investors.
• Ignoring PFOF execution quality: If you trade large volumes, check your broker's Rule 606 report, which discloses where orders are routed. Compare execution prices across brokers. The SEC requires this data to be public.
• Paying for mutual funds when ETFs are free: Many investors pay $49.95 to buy a mutual fund when the ETF version of the same strategy trades commission-free. See our ETF vs mutual fund comparison for details.

Frequently Asked Questions

Q: If commissions are $0, why should I care about trading costs? A: The bid-ask spread remains a real cost. On illiquid stocks or during volatile markets, spreads can be 0.10 to 1.00% of the trade value. For frequent traders, these costs compound significantly. For long-term buy-and-hold investors in liquid index ETFs, bid-ask spreads are minimal (often 0.01%) and trading costs are genuinely near-zero. The bigger risk of zero commissions is behavioral: they remove friction that previously discouraged overtrading.

Q: What is payment for order flow? A: Payment for order flow (PFOF) is when a market maker (like Citadel or Virtu) pays a retail broker (like Robinhood or Schwab) for the right to execute retail customer orders. The market maker profits from the bid-ask spread on each trade. The debate: does PFOF give retail investors better or worse prices than routing to exchanges directly? The SEC has proposed reforms but has not banned the practice. Robinhood paid a $70 million FINRA fine in 2021 related to PFOF disclosures.

Q: Do robo-advisors charge trading commissions? A: No. Robo-advisors like Betterment and Wealthfront buy and sell ETFs on your behalf at zero commission. The robo-advisor's advisory fee (0 to 0.25%) covers all trading activity. Within a robo-advisor account, rebalancing and tax-loss harvesting generate no additional trading costs.

Q: Which broker has the lowest options commissions in 2026? A: Robinhood Gold at $0.35 per contract plus a $0.04 regulatory fee. Standard Robinhood charges $0.50 plus $0.04. Fidelity and Schwab charge $0.65 per contract. Interactive Brokers Pro offers volume discounts down to $0.25 for high-volume traders. For someone trading 50 contracts per month, the annual difference between $0.35 and $0.65 is $180.